Hong Kong’s richest family has the most to lose as protests rage
Credit to Author: pdtechintegration| Date: Tue, 27 Aug 2019 00:34:20 +0000
Li Ka-shing, known as Superman by his admirers, is Hong Kong’s most famous billionaire. But there’s another, lower key, family that has much more riding on the city as it grapples with the worst political crisis in decades.
The Kwoks, who built Sun Hung Kai Properties Ltd. into Hong Kong’s largest developer, control a US$38 billion fortune that’s by far the city’s biggest, according to Bloomberg’s list of the richest families in Asia. The family also has significant ties to Vancouver through Aspac Developments, which they wholly own. Aspac is a real estate development company that played a huge role in turning Coal Harbour into a luxury waterfront community. They are also responsible for River Green, a massive 2,600-unit master-planned community next to the Richmond oval, alongside the Fraser River.
Their empire is also among the most exposed to anti-government protests that threaten to upend Hong Kong’s status as a global business hub. While the historic demonstrations were triggered by a controversial extradition bill, many protesters have cited sky-high home prices, a widening wealth gap and the outsized political influence of property tycoons as reasons why they’ve taken to the streets for 12 straight weeks.
“This is one part of the reason that people are so frustrated,” said Alice Poon, author of Land and the Ruling Class in Hong Kong and former personal assistant to Kwok Tak-seng, a late family patriarch. “They can’t do anything to influence government policies, especially land policies. That’s why young people can’t afford to buy their own homes. The anger has been smouldering.”
A detailed rendering shows views of River Green, Aspac Development Ls Ltd.’s master planned 2,600-unit residential community on the Richmond waterfront adjacent to the Olympic Oval.
Like many other rich clans in Hong Kong, the Kwoks will have to navigate the increasingly combustible environment while also wading through complex succession issues.
That process has been made even more fraught by Walter Kwok’s sudden death by heart attack in October. He was the eldest of three sons who inherited the fortune of Kwok Tak-seng, a grocery wholesaler turned property tycoon from Guangdong province, and his wife Kwong Siu-hing. Walter’s sons, Geoffrey and Jonathan, who ultimately received his shares, became billionaires overnight.
None of the family members agreed to interview requests made through Sun Hung Kai.
Few companies have done more to shape Hong Kong, the world’s least affordable place to buy a home. Sun Hung Kai helped build the city’s two tallest skyscrapers, developed many of its biggest hotels and residential towers, and owns several of its most popular shopping malls — one of which became the scene of dramatic clashes between protesters and police in July. Among the family’s more eclectic projects is a Noah’s Ark theme park, complete with a full-scale mock-up of the boat described in the Bible.
Land policies inherited from the British — combined with a system of political elites defending the interests of the wealthy — have turned Hong Kong’s property tycoons into something akin to feudal lords, according to Poon, who spent about two decades in the local real estate industry.
The city is in a vicious cycle in which developers with large land banks control supply, driving up prices and feeding government coffers through taxes on land premiums, Poon said from Vancouver, where she now lives. Many of those tax receipts go into a capital works reserve fund, which finances infrastructure projects that further drive up land prices, she said.
A handful of property firms are sitting on at least 1,000 hectares of farmland in Hong Kong, an area about one-fifth the size of Manhattan, according to official estimates. Sun Hung Kai has one of the biggest land banks.
The company says it has converted nine million square feet of agricultural land for development in the past five years and about two-thirds of its agricultural land bank is at some stage of being converted for development. That process requires a lengthy consultation and various government approvals, which can take a decade or even two, Spencer Lu, a project director at Sun Hung Kai, said.
While Lu said the company is one of Hong Kong’s most productive developers with about three million square feet of construction completed each year, its residential offerings tend to start at the equivalent of US$1,275 per square foot. That amounts to about US$890,000 for a 700 square-foot apartment, out of reach for many families in a city where the median monthly household income is US$3,750.
Pedestrians walk past a stocks display board showing the Hang Seng index at 25680.33, down 1.91 percent, in Hong Kong on August 26, 2019.
The protests, which have turned increasingly violent in recent weeks, present various challenges for Sun Hung Kai. Over the long run, the biggest threat is growing popular anger over the cost of real estate and the cozy relationship between tycoons and the government. But the company is also suffering near-term blows as the demonstrations dent demand for new apartments and hurt business in its malls and hotels — which include the Four Seasons and Ritz-Carlton.
In one striking scene last month, a woman in high heels toting a Saint Laurent shopping bag was photographed hopping over a pool of blood after protesters clashed with police at Sun Hung Kai’s New Town Plaza, a huge mall in the Sha Tin district with more than 400 stores and restaurants. When some demonstrators blamed Sun Hung Kai for letting the police in, the company released a statement saying it didn’t call the authorities or ask them to enter the mall. Regardless, the firm has beefed up security ahead of marches, which tend to happen on weekends. Plans for an indoor lavender garden at one mall and pet-themed workshops at another had to be scrapped.
Sun Hung Kai’s stock has dropped 11 per cent since mid-June, twice as much as the benchmark Hang Seng Index, as retail sales and hotel-room prices plunged. While Hong Kong’s property market has so far proved resilient, Bank of America Corp. says prices could fall 10 per cent because of the protests.
The Kwoks have joined other real estate barons in calling for an end to the violence. Adam Kwok, an executive director of Sun Hung Kai who’s one of 10 children under Walter and his two brothers, appeared at a rally in support of the government earlier this month. The Real Estate Developers Association of Hong Kong, of which Adam is a committee member, days earlier urged everyone to “actively communicate in rational manner” and find a way out of the situation. Li Ka-shing, Hong Kong’s richest man, has taken out ads decrying violence in local newspapers.
While Li has been diversifying his holdings outside of Hong Kong for years, the Kwoks still derive most of their fortune from the city. Hong Kong represents about 90 per cent of Sun Hung Kai’s sales, though the younger generation has big ambitions to expand in mainland China. A commercial project planned for Shanghai will be the company’s largest to date in terms of square feet.
The Kwok succession has created some of Asia’s richest heirs, and like many other scions, they’re handing down their billions free of estate taxes, which were abolished in Hong Kong in 2005.
At the time of his death, Walter — who in the late 1990s was kidnapped by a Hong Kong gang leader nicknamed “Big Spender” — hadn’t been involved in the running of Sun Hung Kai since 2008. A public family squabble led to his extended leave and subsequent ouster as chairman that year.
This combo of file photos taken on March 7, 2007 shows Raymond Kwok (R) and Thomas Kwok of Sun Hung Kai Properties attending a press conference announcing the 2006 annual results, in Hong Kong. The Kwoks are the southern Chinese city’s richest real estate developers and jointly head publicly listed Sun Hung Kai Properties.
After that, Sun Hung Kai was overseen by his mother, Kwong Siu-hing, along with his two brothers Thomas and Raymond. When Thomas was sentenced to five years in jail for bribery in December 2014, his business activities, including many property operations in the city, were assumed by his wife, Ingrid, and son Adam. Raymond’s sons, Christopher and Edward, handle retail operations.
Walter’s son Geoffrey sits atop a fortune worth US$6.7 billion. A company filing from December lists his age as 33, making him the youngest Asian on the Bloomberg Billionaires Index. He joined Sun Hung Kai’s board in December after stints at Yale and an international investment bank. Younger brother Jonathan, who was educated at Cornell and who also inherited a stake in Sun Hung Kai, has a net worth of around US$2.5 billion. Sister Lesley doesn’t appear in any Sun Hung Kai shareholder filings.
All three are directors of Empire Group Holdings Ltd., the family office founded by their late father. Lesley handles stock and bond investments while Jonathan deals with real estate.
In late May, the brother-and-sister duo made a rare public appearance at a signing ceremony to ink a redevelopment deal between Empire and InterContinental Hotels Group Plc. As Hong Kong’s summer of protest was slowly gaining momentum, the siblings raised champagne glasses and gave terse statements. It was the last time the Kwok siblings met with the press.